May 7 (Bloomberg) -- European nations may provide more aid
to Greece, recipient of the first euro-area bailout, as it
struggles to reduce a debt load that some investors say will
lead to a restructuring.

“We think that Greece does need a further adjustment
program,” Luxembourg Prime Minister Jean-Claude Juncker, who
chairs the group of euro-area finance ministers, said after an
unscheduled meeting of European Union officials last night in
Luxembourg. “This has to be discussed in detail” at this
month’s gathering of finance chiefs, he said.

Greek bonds have tumbled since mid-April when Portugal
became the third euro nation to seek a rescue and German
officials indicated they wouldn’t oppose a restructuring. Greece
denied a report in Germany’s Spiegel magazine yesterday that
said it threatened to withdraw from the euro.

“We’re not discussing the exit of Greece from the euro
area. This is a stupid idea -- no way,” Juncker told reporters.
“We don’t want to have the euro area exploding without any
reasons.”

Greece has already received an extension on bailout loans
this year and policy makers in Athens say another lengthening
would help avoid a broader restructuring. The additional aid may
involve increasing the 110 billion euros ($158 billion) agreed
to in last year’s rescue or enabling the EU’s aid fund to buy
back Greek debt, in addition to easing payment terms, a European
official said after the meeting.

Political Backlash

Those measures may run into opposition in Germany and
Finland, where bailouts have sparked a political backlash.
Germany, the biggest contributor to the bailout pool, has
floated the restructuring option as lawmakers reject tapping
their taxpayers for more aid money.

“We were excluding the restructuring option which is
discussed heavily in certain quarters of the financial
markets,” Juncker said.

The euro slid after the Spiegel report, declining 1.3
percent in New York to $1.4316. U.S. stocks pared gains and
Treasuries rose as reports of the meeting stoked speculation
that a restructuring may be in the works.

Greek Prime Minister George Papandreou said the report of a
possible euro exit was made up and the government was handling
the country’s debt in the best way possible, Kathimerini
newspaper reported.

‘Catastrophic’ Consequences

Abandoning the euro would have “catastrophic”
consequences, Greek Finance Minister George Papaconstantinou
told Italian newspaper La Stampa. Public debt would double,
consumer spending power would be “shattered” and the country
would sink into a “war-like recession,” he said.

Finance chiefs from France, Germany, Italy, and Spain and
European Union Economic and Monetary Affairs Commissioner Olli
Rehn also attended last night’s session.

Beyond Greece, the agenda included the Portugal bailout, a
successor to European Central Bank President Jean-Claude
Trichet, whose term ends in October, and details of the crisis-fighting program to take effect in 2013, a separate European
official said.

Papaconstantinou attended and briefed on the state of the
Greek economy, the Athens-based Finance Ministry said in a
statement, adding there was no discussion of Greece’s status as
a member of the euro area.

The meeting came a year after EU put together an
unprecedented 750 billion-euro backstop on a Sunday night in
Brussels to end the debt contagion that began in Greece. It
hasn’t worked so far. Ireland and Portugal have since been
bailed out and Greece has been forced to fend off suggestions
that it was headed to default.

Restructuring More Likely

“The likelihood of a restructuring of Greek market debt
this year has gone up,” David Mackie, London-based chief
European economist at JPMorgan Chase & Co., said in a note
yesterday.

Greece has about 330 billion euros in outstanding bonds,
according to a May 5 report by UBS AG. The Swiss bank estimates
that 22 percent is held by Greeks and Cypriots, the ECB has 19
percent and the EU and International Monetary Fund together have
about 11 percent.

About 22 billion euros will mature this year and 33 billion
euros next year, according to an April 29 ING Groep NV report.

Greek bonds have declined since the 2010 bailout, with
yields on two-year notes reaching a euro-era record of 26.27
percent on April 28. The extra yield investors demand to hold
Greek 10-year debt over comparable German bonds widened 4 basis
points to 1,233. Greece was supposed to return to markets next
year even as its debt peaks at 159 percent of gross domestic
product.

‘Further Measures’

German Deputy Foreign Minister Werner Hoyer said last month
a Greek restructuring “would not be a disaster.” Finance
Minister Wolfgang Schaeuble was quoted by Die Welt newspaper as
saying “further measures may have to be taken” if Greece
flunks a June audit. The two-year yield was about 17 percent at
the time.

“A haircut or a restructuring of the debt would not be a
disaster,” said Hoyer, a member of the Free Democratic Party, a
junior partner in Merkel’s coalition. If Greece’s creditors
agreed that talks “would be helpful toward a restructuring of
the debt, then of course this would be supported by us.”